Connecting the relevant literature in sociology, political theory and European studies with original empirical research, this article calls for a reappraisal of conflict when addressing the issue of the democratic legitimacy of the European Union. It offers a critical account of rationalistic and consensus-based deliberative democracy both in the classical theories of deliberative democracy and in the practices institutionalised in the EU. Drawing on the model of ‘discursive democracy’ theorised by John Dryzek, it provides an account of the contentious debate over the EU Services Directive (also known as the Bolkestein Directive). It is argued that the EU can function as a polity where democratic legitimacy is granted by deliberation. However, this holds only under two conditions. First, deliberation must be conflict based; that is, it must allow for the voicing of dissent and its channelling into political institutions. Second, supranational institutions and decision making can only be responsive and engage in alleviating conflict through deliberation when conflict is structured along transnational – as opposed to national – lines.